[Congressional Record Volume 162, Number 18 (Monday, February 1, 2016)]
[House]
[Pages H378-H379]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       FAIR INVESTMENT OPPORTUNITIES FOR PROFESSIONAL EXPERTS ACT

  Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 2187) to direct the Securities and Exchange Commission to 
revise its regulations regarding the qualifications of natural persons 
as accredited investors, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 2187

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fair Investment 
     Opportunities for Professional Experts Act''.

     SEC. 2. DEFINITION OF ACCREDITED INVESTOR.

       Section 2(a)(15) of the Securities Act of 1933 (15 U.S.C. 
     77b(a)(15) is amended--
       (1) by redesignating clauses (i) and (ii) as subparagraphs 
     (A) and (F), respectively;
       (2) in subparagraph (A) (as so redesignated), by striking 
     ``; or'' and inserting a semicolon, and inserting after such 
     subparagraph the following:
       ``(B) any natural person whose individual net worth, or 
     joint net worth with that person's spouse, exceeds $1,000,000 
     (which amount, along with the amounts set forth in 
     subparagraph (C), shall be adjusted for inflation by the 
     Commission every five years to the nearest $10,000 to reflect 
     the change in the Consumer Price Index for All Urban 
     Consumers published by the Bureau of Labor Statistics) where, 
     for purposes of calculating net worth under this 
     subparagraph--
       ``(i) the person's primary residence shall not be included 
     as an asset;
       ``(ii) indebtedness that is secured by the person's primary 
     residence, up to the estimated fair market value of the 
     primary residence at the time of the sale of securities, 
     shall not be included as a liability (except that if the 
     amount of such indebtedness outstanding at the time of sale 
     of securities exceeds the amount outstanding 60 days before 
     such time, other than as a result of the acquisition of the 
     primary residence, the amount of such excess shall be 
     included as a liability); and
       ``(iii) indebtedness that is secured by the person's 
     primary residence in excess of the estimated fair market 
     value of the primary residence at the time of the sale of 
     securities shall be included as a liability;
       ``(C) any natural person who had an individual income in 
     excess of $200,000 in each of the two most recent years or 
     joint income with that person's spouse in excess of $300,000 
     in each of those years and has a reasonable expectation of 
     reaching the same income level in the current year;
       ``(D) any natural person who is currently licensed or 
     registered as a broker or investment adviser by the 
     Commission, the Financial Industry Regulatory Authority, or 
     an equivalent self-regulatory organization (as defined in 
     section 3(a)(26) of the Securities Exchange Act of 1934), or 
     the securities division of a State or the equivalent State 
     division responsible for licensing or registration of 
     individuals in connection with securities activities;
       ``(E) any natural person the Commission determines, by 
     regulation, to have demonstrable education or job experience 
     to qualify such person as having professional knowledge of a 
     subject related to a particular investment, and whose 
     education or job experience is verified by the Financial 
     Industry Regulatory Authority or an equivalent self-
     regulatory organization (as defined in section 3(a)(26) of 
     the Securities Exchange Act of 1934); or''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New 
Jersey (Mr. Garrett) and the gentleman from Delaware (Mr. Carney) each 
will control 20 minutes.
  The Chair recognizes the gentleman from New Jersey.


                             General Leave

  Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days to revise and extend their remarks and to 
include any extraneous materials on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New Jersey?
  There was no objection.
  Mr. GARRETT. Mr. Speaker, I yield myself 3 minutes.
  Mr. Speaker, I rise in support of H.R. 2187, the Fair Investment 
Opportunities for Professional Experts Act.
  I would like to thank Mr. Schweikert from Arizona for his diligent 
work on this bill and members on both sides of the aisle who approved 
this bill in the Financial Services Committee by an overwhelming vote 
of 54-2.
  Mr. Speaker, small and emerging companies play a significant role as 
drivers of the U.S. economic activity, innovation, and job creation. In 
fact, the majority of net jobs created in the U.S. are from companies 
less than 5 years old. Most of these companies are privately held 
companies, and their ability to raise capital in the private market is 
critical to the economic well-being of the U.S. and millions of 
American families.
  But in order for small companies to raise capital in the private 
market, under SEC regulations they must sell securities only to what 
are known as ``accredited investors.'' And what exactly determines 
whether an investor is accredited? Well, the SEC has for years 
determined that an individual investor's financial status should be the 
sole proxy for determining whether or not they are able to understand 
the risks and rewards.
  In other words, the SEC has taken the position that only very wealthy 
individuals should be allowed to invest in such offerings. That really 
makes very little sense.
  Under the SEC's logic, a random winner of the Powerball lottery would 
be automatically deemed a sophisticated investor. But an individual who 
holds advanced degrees and works in finance or a related field, but who 
happens to make slightly below what the SEC's threshold is, that person 
would be barred from investing in private offerings.
  You see, despite the paternalistic view taken by Washington 
regulators, there are plenty--plenty--of hardworking and smart 
Americans who are plenty capable of understanding investments in 
private businesses.
  Congress must, therefore, amend the definition of ``accredited 
investor'' in order to expand the pool of potential investors in a 
private placement market.
  H.R. 2187 will do just that by codifying the current accredited 
investor income and net worth thresholds, adjusted for inflation going 
forward. Additionally, it will extend accredited investor status to 
persons who the SEC determines have a demonstrable education or job 
experience to qualify as having professional subject matter knowledge 
related to that investment.
  In other words, the expansion of the accredited definition will 
enhance small companies' ability to raise capital and to grow by 
increasing the pool of potential investors, while at the same time 
increase investment opportunities for more Americans. In fact, allowing 
more individuals to invest in both public and private companies could 
ultimately have the effect of decreasing the risk in these portfolios 
themselves.
  Finally, as SEC Commissioner Mike Piwowar pointed out in a speech 
last year:
  ``By holding a diversified portfolio of assets, investors reap the 
benefits of diversification, that is, the risk of the portfolio as a 
whole is lower than the risk of any individual asset . . . if the 
correlations are low enough, the overall portfolio risk could actually 
decrease.''
  Mr. Speaker, what that means is H.R. 2187 has a double benefit of 
affording American businesses more opportunities to raise capital, 
while actually providing hardworking Americans a greater opportunity to 
create wealth for themselves and their families. I ask my colleagues on 
both sides of the aisle to join me in supporting H.R. 2187.
  I reserve the balance of my time.
  Mr. CARNEY. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, let me first thank the gentleman from Arizona (Mr.

[[Page H379]]

Schweikert) and the gentlewoman from Arizona (Ms. Sinema) for their 
hard work on this bill. As was pointed out by Chairman Garrett, all the 
votes in the committee were in support of the bill, except for two.
  This legislation expands the definition of a ``accredited investor,'' 
a status reserved for investors who possess the sophistication and 
financial means necessary to invest in private, unregistered securities 
offerings.
  Many of these thresholds have not been updated, Mr. Speaker, since 
1982, and the committee determined it was past time to do so.
  It is important to note that the SEC Investor Advisory Committee as 
well issued bipartisan recommendations, which acknowledge that the 
current income and net worth tests ``don't begin to measure the type or 
level of financial sophistication needed to evaluate the potential 
risks and benefits of private offerings.''
  We can all agree, and a vast majority of the members of the Financial 
Services Committee did agree, that an updated definition is long 
overdue. The authors of this legislation and the sponsors, Mr. 
Schweikert and Ms. Sinema, have worked to consider the risks of private 
offerings to ensure that investors in those offerings can understand 
and bear those risks.
  With those comments, Mr. Speaker, I reserve the balance of my time.
  Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the 
gentleman from Arizona (Mr. Schweikert), the sponsor of the underlying 
legislation, and the gentleman who has put all the time and hard work 
on this great bipartisan piece of legislation.
  Mr. SCHWEIKERT. Mr. Speaker, I thank the chairman, and I also thank 
my friend, Mr. Carney.
  This is one of those occasions where we actually get to show up here 
and have something that is bipartisan that we agree upon. But partially 
because being my piece of legislation, and something we have been 
working on for a while, I would like to tell a quick story of where 
this sort of came from conceptually.
  About 4 years ago, we were doing a little townhall at that time 
before redistricting in Tempe, Arizona, and most of the discussion in 
this townhall was a discussion about the haves and have nots, and why 
do some people seem to be making wealth and others are not. We sort of 
tried to actually address it intellectually with some analysis of what 
are the barriers out there. You are a middle income, hardworking 
family, and you have some talents; what is your optionality to be able 
to grow into that next tier of assets, of wealth? This actually became 
part of that discussion, that we actually have had this barrier now for 
decades that say we are going to judge you on your income and your 
wealth and that income and wealth is your threshold that says you get 
to invest in something over here, not your knowledge.
  There was a gentleman in the audience who stood up and said: I have 
got a story for you. I have a Ph.D. in electrical engineering. I work 
at the Intel plant in Chandler. I have some friends that started a 
business a year or two ago. I am an expert. I have a Ph.D. in 
electrical engineering and I worked with these guys for years. They 
started a business, and I am not allowed to invest in it because I 
don't meet the income and assets threshold.
  That is partially what we have accomplished here. The neat thing that 
has gone back and forth in discussion with my Democrat friends and many 
of my friends on our side working the bill--it is not everything I 
wanted--but conceptually it is a terrific idea that income, your wealth 
is not the only prerequisite for your right to invest in something, 
that it also can be your knowledge and your talent. If we really care 
about everyone getting a fair chance at that American Dream, we need to 
do more like this where you get judged by what you know, your 
expertise, and not just the fact that you already have made it.
  Mr. CARNEY. Mr. Speaker, I have no further requests for time.
  I yield back the balance of my time.
  Mr. GARRETT. Mr. Speaker, how much time do I have remaining?
  The SPEAKER pro tempore. The gentleman from New Jersey has 14\1/2\ 
minutes remaining.
  Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the 
gentleman from Arkansas (Mr. Hill).
  Mr. HILL. Mr. Speaker, I thank the chairman, and Mr. Carney, my 
colleague on the distinguished minority, for this bill. I also want to 
thank Mr. Schweikert for his work on developing H.R. 2187, Fair 
Investment Opportunities for Professional Experts Act, which makes reg 
D offerings and private placements more effective by broadening the 
definition of an accredited investor to account for educational or 
professional expertise.
  Because of significant costs and barriers to raising capital in the 
U.S. public markets, many of our small companies raise start-up funds 
or expansion funds in the private market, and many of those private 
market transactions are through accredited investors.
  The current definition focuses only on financial status of the 
investor, and as a result, only wealthy individuals typically can 
participate in reg D offerings.
  H.R. 2187 expands the accredited investor definition, recognizing 
that the ability to participate is not based on an asset test, but on 
their sophistication and knowledge.
  I have been in this business before I was in Congress on and off for 
three decades, and I know that many of our Nation's accountants, stock 
brokers, venture capitalists, and engineers have money management 
experience or have a series 7 FINRA license, they work in money 
management, they work in specific kinds of industries, but they are not 
able to invest in private placements due to the fact that they don't 
meet this income or asset test.
  Mr. Schweikert's bill revises these rules so that investment and 
finance professionals who have this kind of level of professional 
sophistication are now treated as accredited investors, irrespective of 
whether they meet an arbitrary test.
  It is a matter, Mr. Speaker, of basic fairness. The government should 
not limit investing options to only investors they deem worthy.
  Expanding the accredited investor definition will not only increase 
investment opportunities for more Americans, but will help us grow 
thousands of small and emerging markets that struggle to raise capital.
  I thank the gentleman from Arizona for all of his work on this 
commonsense legislation. I enjoyed working with him on it.
  I am proud to support this bill, and I urge my colleagues to do so.
  Mr. GARRETT. Mr. Speaker, I yield myself 10 seconds to again thank 
Mr. Carney, and especially the gentleman from Arizona (Mr. Schweikert) 
for his work on this.
  I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from New Jersey (Mr. Garrett) that the House suspend the 
rules and pass the bill, H.R. 2187, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. SCHWEIKERT. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this motion will be postponed.

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